Income Tax Debate To Focus On Working Poor

But part of the upcoming debate over tax reform will focus on how Virginia levies its personal income tax, the types of breaks it allows and whether the system penalizes the working poor.

Take a married couple, both age 23, with two kids and a taxable income of $19,000. (Remember, taxable income is different from what you take home.)

In Virginia, that family would owe $410 in state income tax. A Republican lawmaker from Page County thinks they should owe nothing.

Del. Allen L. Louderback, a Republican and a veteran of the U.S. General Accounting Office, has proposed a different bracket structure that gives the poor a bigger break.

Whether his plan has any political traction is up in the air. He seems to be on the same page, at least philosophically, with Gov. Mark R. Warner. But House Speaker William J. Howell has weighed in against the idea of a major tax overhaul. He says concerns about poor people getting penalized are overstated.

Although Howell said he was speaking only for himself and did not intend to be confrontational, the chances of any proposal making it through the House of Delegates without his support are not very realistic.

Still, the income tax debate has potentially the highest stakes, since it makes up about 63 percent of all tax money in the general fund.

Under Louderback's plan, a single taxpayer would pay nothing until he or she had a taxable income of $15,000. Someone at that level now is taxed at 5 percent.

A married couple would pay nothing until they reached $30,000. Now they are taxed at 5.75 percent.

Richer Virginians would pay more, too. People with taxable incomes of more than $49,001 would fall into higher brackets.

Louderback sits on the legislative Tax Reform Commission, which is supposed to recommend a tax plan to the 2004 General Assembly.

His proposal goes beyond expanding the brackets. Louderback wants to eliminate most of the politically popular tax breaks and conventional deductions that Virginians now enjoy. The one key exception is the deduction for Social Security income. That would stay.

"I don't see the need for all the gimmicks," he said. "And I call them gimmicks because that's what they are."

If the General Assembly would vote for it, the state tax form would go from 11 pages to one and a half, and with a little jiggering it might fit on a single page. Louderback says his goal is to simplify the tax code, which is one of the assignments of the Tax Reform Commission.

The debate won't be simple, though.

Warner has yet to weigh in on this issue in detail, but when he addressed the commission this summer, he mentioned the same type of example when it comes to the working poor, adding, "The current tax system places unfair burdens on some Virginia citizens."

Howell says statistics argue against a drastic overhaul of the personal income tax. In his recent speech to the Virginia Chamber of Commerce, which has changed the tone of the tax debate, he cited Virginia's "low, flat and stable tax structure" as a boon for investors, job creation and living standards.

Howell says 33 percent of taxpayers, the lowest-income, pay 1 percent of the tax while the top 10 percent pay 52 percent of the tax. The figures come from the tax department.

"I don't think we have a situation where the poor are being unfairly taxed," he said in an interview. "I don't think we've got a terrible situation in Virginia."

The state has something akin to a flat tax; everyone with a taxable income above $17,000 gets taxed at the same rate.

It's not an uncommon structure. In 20 states, personal income taxes are either flat or the top bracket begins at a taxable income of $30,000 or less, according to the Center on Budget and Policy Priorities.

Hugh Lessig can be reached at (804) 225-7345 or by e-mail at hlessig@dailypress.com